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Making Better Stock Market Investments | Financial Planning Tips

Making Better Stock Market Investments

There may be more tomes written about successful investing than pretty much any other subject. Much of this advice is conflicting and a lot of it is highly complex, whilst other advice is over simplified.

So what’s a potential investor to do in order to get started?

Well the first thing you can do is put your faith in someone you completely trust to have your best interest at heart – and that’s you!

Read what you can and try to get to understand the overall world of investing first; it may be easier than you think. Then devise your own process and focus on it. If you ask any Olympic athlete how they prepare – they always say they focus on the process rather the outcomes – as these are beyond your means to control anyway.

Never make any kind of investment decision when you’re emotional and try to take all emotion out of your (rational…) decisions.

Remember that markets trend upwards over time, but also that human beings have an innate tendency towards optimism which has previously been necessary for our survival as a species – but which is often unfounded. This means two slightly contradictory things simultaneously; one, that markets will always recover given time – but two, that promises and expectations probably won’t be delivered upon – so most individual shares without good track records are actually losers.

Be patient. Seek expert advice when someone obviously knows more about a subject than you do – don’t make the mistake of thinking that an untested expert knows anything more than you do.

Don’t make investments based on optimism. Instead, focus on long term earning streams and the dependability of the underlying business model. Don’t chase innovative investments because others are doing so; these are usually bubbles.

Don’t believe you can predict the future in detail; stock market changes cause people’s behaviour to change, too. And never find excuses to ignore your own rules.

It’s usually wise to target risk-minimisation before thinking about return. Then ask if the return justifies the risk. Focus on company balance sheets and make sure you understand them before deciding where to invest. The kind of debt management companies have undergone in recent years, for example, makes some of them cash and asset rich. These assets will help protect the downside during the bad times. But no matter how strong it may seem, never put all your eggs in one basket.

And finally- remember that if you own a very small percentage of a company via a few shares, but would be afraid to buy it all, then this is probably more about speculating than investing wisely for your future needs. Good luck.

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